Back at ya … managing retail returns

Customer returns are just a fact of retailing. People will buy the wrong size, some items will be defective, or the thing just won’t work as the customer thinks it should. Just how a retailer deals with returns can vary. Internet Retailer has an interesting article that discusses how a number of web-based retailers deal with returns (Get Back, Apr 2010). First, how big an issue is this? Some numbers:

On average, data compiled from about 50 Kurt Salmon clients show that online consumers return apparel and other soft goods at relatively high rates of from 20% to 30% of orders (with women usually at the high end of that range, and men at the low end) compared to less than 10% for hard goods like gifts, home products and toys, Paransky says.

The current poster child for customer service Zappos sees an average return rate of 30% but there is a significant subset of customers that return 50% of what they buy. These customers are significant because they are in some way Zappos’ best clients. These are the ones that on average buy the most expensive shoes. At some level this makes sense. If you are dropping a lot of money on shoes, you want them to fit perfectly and it makes sense that these buyers are more demanding or finicky. Because Zappos makes the process easy, these customers keep coming back. The take away then is that a simple and forgiving returns policy is a way to win and hold on to customers — a finding supported by research.

OK, so what are the options?

So one possibility is to partner with a logistics firm to simplify the returns process for the customer. UPS offers a Flexible Returns Program:

BuySeasons introduced the UPS Flexible Returns Program on its costume products site, BuyCostumes.com, last summer, just before its peak shopping season leading up to Halloween. The UPS program, which customers access through the Returns link that appears at the top of every web page at BuyCostumes.com, lets customers download a shipping label and enter an online request for package pickup. The return shipping cost to customers is a flat $7, a price that Rowinski figures is less expensive 90% of the time compared to when customers handle their own shipping.

BuySeasons breaks even on the program but benefits from better information. Knowing how many returns are coming allows them to better manage their warehouse staff. Going a step further, it is possible to integrate inbound returns with the firm’s inventory system:

That kind of automation is already helping to manage inventory at online retailer Shoebuy.com Inc., which developed in-house a system that automatically updates the retailer’s inventory and accounting systems when items are returned, says Jim Keller, senior vice president for marketing and business development. “That allows us to tie the return directly to the initial order, and it expedites the return process when a package comes back into our facilities,” he says. “The online return processing ties into our inventory and financial systems, so when a return comes in it’s easier for the folks in our warehouse, for example, to pull up the exact customer order related to the return to make sure that what we’re expecting to be in the returned box is in the box.”

But does the retailer want to deal with the returns themselves? Apparently there are options to have a vendor provide the software and contact support for returns or to have a vendor handle the physical flow of goods. This last option makes some sense since returns are (hopefully) lower volume and more sporadic than sales. For one firm, that makes for a difficult planning problem but a third-party can aggregate that variability over multiple clients and enjoy some economies of scale.

That leaves only one question: How does Zappos mange returns? They apparently keep all the work in house.

It takes several months to a year to train the warehouse workers who process returns. And those are the highest-paid jobs offered to warehouse workers as they require quick, non-stop decisions on whether returned goods satisfy Zappos standards for re-stocking or whether they should be liquidated, Adkins says.

Most places I order from (officemax small business for example) don’t even bother having me send back the item I don’t want if it is under a certain amount of money. They tell me I can keep it, and refund my credit card. It makes sense, but it also makes me worried people will take advantage of this.